Investors are averse to risk as the Wuhan virus spreads around the world. Photo: AFP

Trade of the Day: Investors averse to risk as Wuhan virus spreads outside China; PBOC measures boost Chinese stocks.

Quote of the Day: “Coronavirus pandemic could cut world GDP by $1tn,” said Oxford Economics in a note. “In H1 2020, world GDP growth falls to nearly zero, and for full-year 2020, it’s US$1.1 trillion (1.3%) below baseline.”

Stock of the Day: Electric carmaker BYD CO Ltd rose as much as 15.7% after Citigroup raised its target price to HK$80 per share, saying Tesla’s shift to a cobalt-free battery is healthy for BYD, which is a leading manufacturer of cobalt-free LFP (lithium ferrophosphate) batteries. That is a near 50% gain from today’s close.       

Number of the Day:. $13 billion. The price that Morgan Stanley is paying to buy E*Trade in an all-stock takeover.

Tip of the Day:  “In the short run the extreme divergence between different asset classes and positioning suggests that an equity volatility swing could arise from a ‘growth scare’ (difficult for equities) or a ‘growth surprise’ (difficult for bonds),” said Jefferies equity strategists in a note. “The catalysts would appear to be a winding down of the Fed’s T Bill program and/or much weaker China GDP prints. We temper our enthusiasm for MSCI All World short-term.”

Financial markets stumbled on Thursday as the spread of coronavirus outside China gathered speed with reports of a spike in numbers in Japan and South Korea. The losses were contained as China moved to stimulate an economy stricken by travel movement restrictions and manufacturing disruptions.

The MSCI Asia Pacific ex-Japan index fell 0.4%, and the Hang Seng index edged down 0.17% as gains in energy, consumer non-cyclicals and insurance sectors were offset by losses in property and telecom sectors. But the Shanghai composite index jumped 1.4 % as commercial banks cut the Loan Prime Rate (LPR) following the People’s Bank of China’s decision to lower their funding costs. Signs of growing business activity also boosted sentiment in mainland stock markets. Earlier, Japan’s Nikkei 225 index rose 0.34% and Australia’s S&P ASX 200 added 0.25%.

Chinese stocks also received a leg-up after signs emerged that there was a pick-up in economic activity.

“Daily power coal consumption recorded the first meaningful uptick since the Lunar New Year, as some local authorities started to loosen administrative barriers for production resumption,” said Morgan Stanley analysts in a note.

There is also confidence that the virus count in China would decline. According to China’s National Health Commission, there were 349 new cases reported in Hubei on Wednesday, the epicenter of the epidemic. This is a decline from the previous day’s 1,693 and 1,807 on Monday.

A Reuters news report said big manufacturing hubs on the Chinese coast are starting to loosen curbs on the movement of people and traffic while local governments prod factories to restart production. It said cities like Hangzhou, Ningbo, Foshan, and Zhongshan have started introducing these relaxations.

The weakness in the Asia-Pacific had a knock-on effect in the Western markets – the Stoxx Europe 600 Index was down 0.3% and futures on the S&P 500 Index edged 0.1% lower.

Investors are drawing some relief from minutes of the US Federal Reserve’s January meeting showed a more positive assessment of the world’s largest economy amid easing trade tensions and a stabilizing global economic outlook. “Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting, although a number of downside risks remained prominent,” the minutes showed.

Umesh Desai is Asia Times Finance Editor. Prior to his current role he was at Reuters for 19 years before which he was a credit ratings and equity research analyst. A chartered accountant by training, he is based in Hong Kong.